China’s Economic Coercion Is More Bark Than Bite

Economic warfare has been part of statecraft for centuries, so it’s no surprise Beijing is leveraging its growing economic clout for political ends. But what might be unusual is how ineffective the tactic is becoming. China has been increasingly obsessed with deploying coercive economic measures against countries that have supposedly offended it, such as Australia, Canada, and Lithuania. Last week, China suspended imports of sugar apples and wax apples from Taiwan over supposed pest concerns—but actually in retaliation for Taiwan’s plans to rename its representative office in Washington. Earlier this year, it imposed a similar ban on pineapples from Taiwan amid deteriorating ties.

Often targeting symbolic and visible areas of trade, China usually employs informal tools that are difficult to call out or challenge at the World Trade Organization (WTO) or other bodies, such as customs delays, market access denial, stricter import inspections, phytosanitary concerns (as in the case of Taiwan), and anti-dumping. Typically, Beijing denies any link between the measures and any prevailing political tensions with a country, but it makes sure the target gets the message. Further, state media outlets also encourage supposedly spontaneous popular boycotts, citing public rage against the targeted country.

This is a well-worn playbook that is becoming easier to read—and increasingly less effective. According to a study by the Australian Strategic Policy Institute, China has used “coercive diplomacy” more than 150 times against foreign governments and firms since 2010. Observers often tend to exaggerate the impact of these actions, portraying them as a sophisticated and coherent strategy that has the ability to cow liberal democracies into subservience. But a closer look reveals China’s record is far less impressive than often thought, rarely producing the outcomes Beijing desires.

The use of economic sanctions against Norway, the Philippines, and Mongolia were all somewhat successful as they resulted in changes to a particular policy or stance in the target country that irked Beijing. South Korea, however, did not reverse its decision to deploy an U.S. anti-missile system despite sustained pressure from China across a broad range of sectors from trade to culture to tourism.

An increasing number of countries are showing a similar willingness to weather the storm by absorbing short-term economic pain and disruption to stand up for their values, policies, and self-respect. Further, resisting China’s economic blackmailing or the threat of such actions may be hardening targeted countries’ resolve and inspiring confidence in others.

The most recent example of this is Lithuania. The Baltic state has drawn China’s ire for allowing Taiwan to open a de facto embassy there using its own name. In response, China has cut back rail services to Lithuania and imposed arbitrary regulatory hurdles for the country’s agriculture, animal husbandry, and timber industries. State media and local experts have also gone ballistic, with one academic calling Lithuania a “buffoon” that “miscalculated China’s economic influence.” An editorial in the belligerent nationalist tabloid the Global Times even suggested China work with Russia and Belarus to punish Lithuania.

It is still early, but so far, Vilnius has remained defiant and shown no signs of caving in to the pressure. In fact, its defense ministry has asked consumers to throw away their Chinese phones and avoid buying new ones. “Sometimes it’s quite the opposite—the pressure increases resilience rather than breaks the country,” Lithuanian Foreign Minister Gabrielius Landsbergis told Foreign Policy recently. Lithuania could be a “canary in the coal mine” for how smaller countries react to political and economic pressure from China, Landsbergis added.

Compared to nations like the Philippines, the Baltic nation’s vulnerability to Beijing’s economic intimidation is limited given the negligible volume of trade between the two nations. A lack of strong leverage means China will likely double down on psychological intimidation through its propaganda machinery and “wolf warrior” diplomats. A similar scenario played out in 2020 when China threatened retaliation against Prague in response to the Czech Senate president visiting Taiwan. Prague has made little of the threat and remains resolute.

But Australia, which conducted far more trade with China, has also proved a harder nut to crack for Beijing. Australia’s relations with China were already on a downward spiral since 2017 but went into freefall after Canberra called for an inquiry into the origins of the coronavirus pandemic in April 2020. Beijing then unleashed a torrent of retaliatory trade moves targeting 10 Australian items—including barley, wine, beef, and cotton—with both official and unofficial sanctions. Iron ore, crucially, was left off the table given that a ban, official or otherwise, would cause considerable collateral damage on the Chinese economy.

Given the level of economic interdependence, Australia should arguably be one of the most susceptible nations to China’s economic browbeating. More than a year later, Beijing has been able to inflict minimal damage. The ban on Australian coal is already backfiring as China struggles with a power crisis. Although exports of the targeted commodities to China have dwindled, they have managed to find buyers in other countries, albeit not without costs. And in terms of overall trade at the macro level, the value of Australia’s exports to China only declined by roughly 2 percent in 2020. In a speech in early September, Australian Treasurer Josh Frydenberg said the “relatively modest” impact of Beijing’s actions may be “surprising to many.”

If the goal of the coercion campaign was to alter Australia’s strategic calculation more suited to China’s interests, then it clearly has not worked. Notably, Canberra has not kowtowed despite Beijing’s hardball tactics, increasingly raising issues like the South China Sea and the treatment of Uyghurs in Xinjiang, China.

Or take Canada, which has endured economic retaliation and “hostage diplomacy” from China over the arrest of Huawei executive Meng Wanzhou, who has now been released. Ottawa has not capitulated to the pressure, and overall trade with China remains steadfast. Furthermore, some of the restricted commodities, such as canola, continue to find their way to China after being rerouted through the Europe and the United Arab Emirates.

Closer home, Taiwan seems to have scored a victory over China in its “pineapple war,” which began earlier this year. The move was seen as a strategy to weaken Taiwanese President Tsai Ing-wen’s support base in the farming industry. From the onset, Taiwan’s government actively sought new customers overseas and urged locals to eat more tropical fruit via social media campaigns and farm visits. Recent trade data shows the campaign is largely working as a greater share of Taiwanese pineapples are being consumed locally and are being exported to Japan and Hong Kong. Japan alone imported 16,556 tons of the tropical fruit from March to June, more than eight times the number imported a year ago. A similar scenario may play out with the recently banned sugar apples and wax apples from Taiwan.

As the above cases show, efforts to “weaponize trade” or economic interconnectedness can be counterproductive. They prompt countries to reduce their mutual dependence, accelerate the process of diversification, and instill a level of economic resiliency. Further, coercive tools can backfire by crystalizing a negative image of China in targeted nations and prompt a reassessment of Beijing’s reliability as a trade partner even in countries watching from the sidelines. At the same time, Beijing’s overuse of such tools may inadvertently push the targeted countries closer to the United States. Beijing’s ability to put business lobby pressure on foreign governments, such as in the United States or Australia, may also take a hit.

Much of China’s economic coercion power rests on psychological intimidation. Buying into a simplified narrative of countries bending to China’s will in the face of economic coercion only enhances the effect of such tactics by overstating the risk more than what it is. Assumptions about a country’s economic relationship being derailed just for raising sensitive issues or provoking China should also be reevaluated.

One argument says the ultimate point of China’s economic coercion is not forcing the reversal of a country’s particular policy but rather signaling displeasure and dissuading other countries from taking a similar path—or “killing the chickens to scare monkeys.” Even by that metric, it appears China’s use of economic sticks is not working as more countries openly defy Beijing. Just weeks after China threatened Lithuania over its ties to Taiwan, the European Parliament’s Foreign Affairs Committee adopted a report that urged the European Union to elevate political relations with Taiwan. The ability of countries, such as Australia and Lithuania, to endure Beijing’s coercion may also prove an inspiration to future targets.

All this is not to say China’s economic coercion should be written off or taken lightly. Just as countries become more adept at mitigating the risk of punitive actions, China will also look to sharpen its coercive tools to enhance their sting. Further, although countries may possess the wherewithal to absorb the pressure, companies don’t necessarily have the capacity or appetite to resist conforming to Beijing’s wishes lest they be shut out of the lucrative Chinese market. In 2018, three U.S. airlines complied with a demand to change their reference of Taiwan after Beijing threatened them with unspecified sanctions. Or take LinkedIn, which acquiesced to censorship demands after Chinese authorities punished it.

If victims of China’s economic coercion are left on their own, they are more likely to succumb to Beijing’s pressure. Like-minded countries should muster a collective response in the face of such intimidation, raise awareness, and impose reputational costs on Beijing over it. The Biden administration has publicly backed Australia and Lithuania but so far offered little material support. The EU has also put forward a legislative proposal to deter and counteract coercive actions.

But beyond rhetorical support, countries should be willing to pick up the slack and increase their intake of commodity imports targeted by China—at least, in the short term—to compensate lost revenue. At the very least, they should not seek to capture market shares of countries targeted by China. A concerted effort to reform the WTO to fix the loopholes that allow China to carry out economic predation should also be a priority. Another option, as some analysts have suggested, is to impose punitive retaliatory tariffs on Chinese exports or introduce surcharges on exports China is highly dependent on.

Just as the United States has learned that financial sanctions, while immensely powerful, rarely secure concessions from targeted countries, China is learning a hard lesson: Economic leverage is not easy to wield and convert into political wins. But that does not mean China will stop using such tools whenever it feels disrespected. Domestic political compulsions require China’s authorities to show exuberant displays of fury and action, irrespective of their effectiveness. Coercive economic measures serve as a politically convenient option to show nationalists at home that China is punishing countries that challenge it—and even when it fails, the Chinese media will simply not talk about the defeat.